Issue Number: 102   November 2013

LNG: Will it float?

A short report on planned Floating LNG (FLNG) facilities around the world, 2013-2023.

A discussion about Floating Liquified Natural Gas (FLNG) for this month's issue of MZINE might seem ill-timed. As temperatures drop and we reach for the heating controls, we are chilled when we think about about the minus temperature of -162°C that it is required for natural gas to become liquified. However, it also happens to be a very ripe time to think about FLNG: no longer a fiction, FLNG is quickly becoming a fact. FLNG technology has made major advancements in recent years and is likely to become operational in 2015. Big companies are now itching to jump onboard these new vessels.

The concept of FLNG was first conceived in the 1970s when companies began to realise the potential usefulness of an LNG facility that could be harboured to an offshore gas field. FLNG works by having liquefaction facilities onboard a barge or a boat and the vessel is anchored to the seabed and extracts gas directly from the gas field. In effect, LNG is produced at the site of the offshore gas field; it is stored onboard the boat or barge and then transferred to carrier ships, which export it directly to markets.

Floating LNG at work. An LNG carrier is being loaded from the FLNG vessel

Source: http://www.2b1stconsulting.com/in-scarborough-browse-stockman-majors-see-flng-to-cut-costs/

Why use FLNG technology?

The reasons for using FLNG are plentiful: FLNG is able to utilise smaller gas reserves; it is theoretically transportable and can move from one gas field to the next; it reduces flaring; it is economically strong because it does not require the construction of sub-sea pipeline to move gas to an onshore LNG facility; it takes up far less space than a conventional LNG facility; and it can be built in a country where labour is cheaper. However, there are also vast challenges that FLNG needs to overcome; some of these are likely to be unforeseen.

This article will explore the big, burning questions surrounding FLNG in the next ten years: where, when and on what scale will FLNG take place? And what are its challenges?

The component parts of an FLNG vessel

Source:https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1002613251&serialid=nAz4DmJMo2UQ9%2FysGkS7iGjTHOgP%2BwKBggipqw3pk9w%3D

Malaysia

In discussions of the world's first FLNG facility, Australia and the project Prelude are usually mentioned. However, Malaysia, which is currently the world's second largest LNG exporter, producing 31.8bcm (billion cubic metres) of LNG in 2012, is far more likely to have the first FLNG facility in the world, possibly a year or two ahead of Australia.


Source: http://www.asiasis.com/bbs/data/news/16687$2$petronas.png

The Malaysian owned oil and gas company Petronas has signed a US$771 million contract for the engineering, procurement, construction, installation and commissioning with the Technip-DSNE consortium in June 2012 [1] . Technip is the pioneer in FLNG technology and has overcome many challenges, including the development of cryogenic storage tanks that are resistant to sloshing, the construction of topsides that can pre-treat gas and liquefy it, and create ship-to-ship offloading equipment appropriate for LNG transfer at sea [2] . The FLNG unit (Murphy 60%, Petronas 40%) with a 1.2 million tonnes per annum (mtpa) capacity is being constructed at the Kanowit gas field off Sarawak and is likely to be completed by 2015. FLNG is particularly welcome in Malaysia because it has large gas reserves offshore that would be expensive to access via sub-sea pipeline. This example highlights a big advantage in using FLNG.

Malaysia has a second FLNG planned (Murphy 80%, Petronas 20%) which will be based at the Rotan field (offshore Sabah), and produce 1.5mtpa. The FEED (Front-End Engineering Design) is expected to be completed this year and start-up in 2016.

Australia

Australia is currently the third largest exporter of LNG in the world, selling 28.1bcm of LNG in 2012, having some $190 billion invested in its LNG projects and on track to replace Qatar as the largest LNG exporter in the next decade [3] . MJMEnergy analysts expect Australia to produce around 110bcm of LNG by the end of 2020 as many FLNG and LNG projects will have come online. FLNG is a particularly promising technology for Australia because the country has higher construction costs compared with other countries; and the ability for the FLNG technology to be developed in South Korea or elsewhere means that it will cost companies far less in terms of labour. The negative side to this is that governments are less happy for companies to use FLNG technology because it will generate fewer jobs.

The most discussed of FLNG projects is Prelude FLNG which is 100% Shell-owned. The vessel is being designed like a barge with storage for LNG in its hull. It is currently being constructed in the Samsung yard in South Korea by a joint venture of Samsung and Technip. This will be based at the Prelude gas field 200km offshore of Western Australia and engineered to produce 3.6mtpa of LNG, which will make it the largest offshore floating facility in the world. The start-up date is expected to be late 2016 or early 2017. At 488 metres (1601ft) long and 74 metres (242 ft.) wide, it is a huge vessel and longer than the longest ever oil tanker (Seawise Giant). It makes a football pitch look tiny in comparison.

Size comparison with a football field, aircraft carrier and oil tanker.

Source: http://www.memorieshop.com/Liquid-Natural-Gas/index.html

Australia has several other FLNG projects planned including Bonaparte FLNG that will produce 2mtpa when it becomes operational (FEED expected Q2 of 2015, and gas production is predicted to happen in 2019). Bonaparte FLNG, a project between GDF Suez (60%) and Santos (40%), will be extracting gas from the Petrel, Tern and Frigate gas fields in the Bonaparte Gulf, which straddles the Western Australian and Northern Territory offshore border.

Browse LNG…. Or FLNG?

There were plans for an LNG facility to extract gas from the offshore fields in the Browse Basin (north of Western Australia). This project is called Browse LNG and it was expected to produce 3.6mpta; however, the mainland project has recently been cancelled because of rising costs. The project leader, Woodside, announced that they will continue with the project but use FLNG technology to process gas. This example highlights the financial benefits to companies because FLNG technology will mean that there will be far less infrastructure compared with an onshore LNG plant, costing far less in construction fees. Shell has suggested that using FLNG technology might be 30-50% cheaper than using conventional onshore LNG technology [4] .

Mr Rob Cole, Executive Director of Woodside, has said: 'Floating LNG has been a game changer for this project, it's innovative, smart technology.' However, there has been vitriolic criticism and opposition to Woodside's plans. The Premier of Western Australia, Colin Barnett, has concerns that the FLNG project will risks thousands of jobs and is hoping to pressure Woodside into using the land for its LNG facility [5] . Despite this opposition, it looks likely that Woodside will pursue FLNG technology [6] . This example also indicates the challenge that FLNG poses: governments feel uneasy over FLNG developments because it will reduce the number of jobs.

Similarly, there has been opposition to Prelude's sister project, Sunrise FLNG but due to a different reason. Sunrise FLNG aims to utilize the gas from the Sunrise fields, which are off the Timor-Leste coast. But the Timor-Leste government has opposed this plan by claiming the technology was untested and too risky [7] . Despite this, it seems that the FLNG project is going ahead, though no FID (Final Investment Decision) has yet been made [8] . One other potential for FLNG is the Scarborough (Pilbara) project. The size of this plant, which would produce 7mtpa, would make it the largest FLNG in the world when it comes online in around 2021 (FID planned in 2015).

Indonesia

Indonesia is currently the 5th largest export of LNG in the world, exporting 25bcm of LNG in 2012 and has a theoretical export capacity of 57.5bcm. However, underinvestment has meant that Indonesia has not reached its LNG potential. In terms of the future of FLNG, however, it looks promising. There is currently a project underway called Abadi FLNG led by the Japanese firm Inpex (65%) with Shell (35%). It received its FEED in 2012. Abadi FLNG will tap into the Masela gas block, located in Indonesia's southern territorial waters, which borders Australia's waters, and aims to produce 2.5mtpa. A FLNG FEED contract has been awarded to two groups: one group is led by JGC Corporation/PT JGC Indonesia and the other group is led by PT Saipem Indonesia/Saipem s.a. These two groups will both work on the FLNG FEED and are in competition with each other to come up with the best design. It is planned that the best designer will continue into the FLNG EPC (Engineering, Procurement and Construction) phase. The FLNG EPC contract will be awarded to the group who provides the best technical and commercial design for the FLNG facility [9] .

Israel

Israel does not currently export LNG, and its gas industry is still developing. It has recently discovered large reserves in the last few years, including the Tamar (10 trillion cubic feet) in 2009 and Leviathan (18 trillion cubic feet) in 2010 gas fields. In 2012, Noble has awarded a FEED contract to Pangae LNG B.V. for a FLNG vessel to be installed on the Tamar gas field, which is scheduled to produce LNG in 2017 (with an annual output of 3mtpa). There is a possibility for a second FLNG vessel to be brought to the Leviathan field.

However, there is uncertainty about the future of LNG trade in Israel. Israel's Prime Minister, Benjamin Netanyahu, has said that he wants 60% of its natural gas reserves earmarked for domestic use. This would therefore put a cap on exports at 40% of the reserves. Furthermore, Israel would want 60% of the profits on exports. There are also questions about the future of pipeline gas in Israel: if gas is exported via pipeline, it would further reduce the amount of gas available to sell as LNG.

Demand for Israel's LNG is not in short supply. Gazprom has expressed an interest to buy LNG from Tamar and use FLNG to receive, liquefy and then ship the gas on site. Russia is beginning to diversity its gas exports: it is moving away from the gas market in Europe which is relatively weak, and strengthen its hand in the booming Asian LNG market.

Brazil

Brazil has entered the news recently because its oil industry has received a huge boost after discovering the country's largest ever oil field. The field is expected to provide $400 billion in state revenue from the Libra field over thirty years which will transform the country [10] . Compared to the future of the oil industry, FLNG in the immediate future does not look too promising. The consortium of Petrobras, BG Group, Galp Energia and Repsol had originally planned for a FLNG terminal offshore in the Santos basin. However, it has opted to use traditional technology of transporting the gas onshore via pipelines. Despite this, in the longer-term future there is a great opportunity for Brazil to use FLNG technology. There are still many gas exploration blocks left (60+ in the Santos and Campos basins alone) and FLNG facilities might become a reality in the longer-term future.

Conclusion

By the end of next decade, FLNG will far from dominate the LNG industry. Based on this article's suggestions, only Australia, Malaysia, Indonesia and possibly Israel will be using FLNG technology within the next ten years.

Given that the LNG industry needs the technology to access gas reserves that are out of reach by land-based facilities, it might seem surprising that FLNG will not be widely used by 2023. But it is less surprising when it is considered that the technology is so new and expensive. Small companies are unable to enter into the FLNG industry because the technology means that it is risky; banks will not lend the money. The only FLNG players at the moment are the huge corporations like Shell, INPEX, Woodside and GDF Suez who have the funds to pursue huge projects.

A longer-term outlook, reaching to the 2030s, will see the wider use of FLNG technology. Gas companies will see greater incentive to access remote offshore gas reserves as onshore or offshore gas reserves near to land become diminished. And, as the technology develops and becomes proven, investors will rush to use FLNG.


[1] http://oedigital.com/component/k2/item/3760-petronas-kanowit-field-flng-facility-underconstruction

[2] http://www.technip.com/sites/default/files/technip/publications/attachments/Floating_LNG_September_2012_Web.pdf
There are further challenges in this, see pp. 144-145: www.firstmagazine.com/DownloadSpecialistPublicationDetail.608.ashx

[3] http://www.reuters.com/article/2013/04/02/us-exxon-bhp-lng-idUSBRE9310C920130402

[4] http://www.abc.net.au/news/2013-10-23/shell-planning-to-source-browse-staff-locally/5041286

[5] http://www.abc.net.au/news/2013-10-16/woodside-defends-its-decision-to-use-flng-at-browse/5027016

[6] http://www.epcengineer.com/news/post/10878/woodside-recommends-floating-lng-for-browse

[7] http://www.laohamutuk.org/Oil/Sunrise/2013/AFRWoodsideBacksAway25Apr2013.pdf

[8] http://www.smh.com.au/business/the-sun-will-rise-over-woodside-20130823-2shjb.html

[7] http://www.offshoreenergytoday.com/inpex-awards-feed-contracts-for-abadi-flng-indonesia/

[8] http://www.reuters.com/article/2013/10/22/us-brazil-oil-auction-idUSBRE99K19720131022


November 2013 MZINE